10 Tips to Master Personal Finance

Personal finance is a big subject. It’s fair to say there’s more to know than the average credit-card-swiping, online-bank-account-monitoring, stock-market-checking individual can keep track of.

That’s why we’ve assembled some of the top tips for personal finance in one place.

The Basics

Know your net worth

The difference between your assets and debts equates to your net worth. It’s a big-picture number. But when tracked regularly, knowing your net worth can give you a good sense of whether you’re moving forward in your financial situation or if you need to make some budgeting adjustments. Our calculator can help.

Understand the power of interest rates

Suffice it to say that interest rates drive a lot of decisions about debt and savings. Which loans to pay off first, what savings account to open, when to refinance a home – the answers to all of these questions come down to interest rates. Pay heed and gain command of the interest rates in your life.

Budgeting

Set a realistic budget

Not just a financial buzz word, a budget helps you know how much you’re to cut back or reallocate. Get started with a cash flow analysis. But be realistic. No one expects you to give up your social life. Include in your budget resources for indulgences such as restaurants, movies, happy hours and sporting events.

Start an emergency fund

An emergency fund houses cash you can access immediately in times of trouble. What’s trouble? Job loss, medical emergencies, a broken down car, major house expenses (e.g., a broken air conditioner, a leaky roof). Take the extra step and set up a separate account for your emergency fund; don’t combine it with an existing checking account. Doing so will keep you honest and your emergency savings as a reliable resource.
Set financial goals
A financial goal is anything significant you want to do with your money: buy a house, send a child to college, pay off debt, take a European trip, or get replacement windows. You should never be without goals. Once identified, determine how much you need to save for each goal, apply a target date, and set up regular investments toward your goals. Our savings goals calculator can help.

A financial goal is anything significant you want to do with your money: buy a house, send a child to college, pay off debt, take a European trip, or get replacement windows. You should never be without goals. Once identified, determine how much you need to save for each goal, apply a target date, and set up regular investments toward your goals. Our savings goals calculator can help.

Debt

Pay off small debt first

Studies have shown that paying off small debts first can give you the confidence you need to tackle the larger ones. One way to go about this is list your debts in order of their balances, then pay the smallest balance first, paying its monthly minimum and throwing any extra cash at it each month. At the same time, make minimum payments on the largest debts. Once the smallest is paid off, apply its minimum payment to the next smallest debt. And so on until all are paid off.

Don’t co-sign a loan

It may make you look like a super human being to co-sign your friend or brother’s loan, but that shouldn’t be your primary concern. Instead, remember that if the borrower misses a payment, the lender can come after you for the money – and your credit score may take a plunge. As for your relationship with the borrower...

Fill out the FAFSA

Got a kid going to college? Even if you think you won’t qualify for financial aid, fill out the Free Application for Federal Student Aid (FAFSA). It’s your ticket to the Pell Grant, which doesn’t need to be paid back, federal work-study jobs, federally-subsidized student loans and, in some cases, scholarships offered by your child’s college.

There’s a saying: Your kids can borrow for college, but you can’t borrow for retirement. Set up your retirement savings plan first, then begin saving for college.

Saving for retirement

Start saving ASAP

If you have a full time job, don’t put off starting a retirement account. Even if you only save $25 a month at first, your money will grow over time through the power of compound growth. In years that you receive a raise at work, pay it forward and increase your retirement contributions. Our retirement calculator can help you estimate how much you need.

Don’t cash out your retirement account early

You’ve worked hard to save for retirement, so resist the urge to cash it out for an emergency (see “Start an emergency fund” above). Doing so will hit you with a hefty fee for early withdrawal and a tax bill.

There’s a lot to know about personal finance. But you’re not in this alone. A financial advisor at Waddell

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